Arcos Dorados Holdings: Favorable Franchise Terms and Aggressive Growth Trajectory Justify Buy Rating

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Analyst Julia Rizzo of Morgan Stanley maintained a Buy rating on Arcos Dorados Holdings (ARCO – Research Report), with a price target of $13.00.

Julia Rizzo’s rating is based on the recent positive developments in Arcos Dorados Holdings’ financial agreements and their growth prospects. The company has successfully renegotiated a new Master Franchise Agreement (MFA) with more favorable royalty rates than previously anticipated. This new rate is set at 6%, which is not only lower than the current effective rate but also beneath the rate projected in the existing MFA contract. These improved terms are expected to serve as a significant catalyst for the stock, as market participants have been eagerly awaiting this news. Additionally, Arcos Dorados Holdings demonstrates a strong growth trajectory, with plans to increase its number of store openings by approximately 10% in 2025 compared to the guidance provided for 2024. This aggressive expansion strategy signifies the company’s robust operating momentum. Coupled with a valuation that appears discounted when looking at the forward EV/EBITDA and P/E multiples, Rizzo identifies Arcos Dorados Holdings as a top choice within the Latin American Quick Service Restaurants (QRS) sector, which justifies the Buy rating.

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Arcos Dorados Holdings (ARCO) Company Description:

Arcos Dorados Holdings, Inc. engages in the operation of restaurants. The firm operates and franchises McDonald’s restaurants in the food services industry through its subsidiaries. It operates through the following geographical segments: Brazil, Caribbean Division, North Latin America division (NOLAD), and South Latin America division (SLAD). The Caribbean Division geographical segment composes Aruba, Curacao, Colombia, French Guyana, Guadeloupe, Martinique, Puerto Rico, Trinidad and Tobago, the U.S. Virgin Islands of St. Croix, and St. Thomas and Venezuela. The SLAD geographical segment comprises Argentina, Chile, Ecuador, Peru, and Uruguay. The NOLAD geographical segment consists Costa Rica, Mexico, and Panama. The company was founded on August 3, 2007 and is headquartered in Montevideo, Uruguay.

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